The extent to which the income tax system addresses particular economic or social issues forms the central theme of tax policy confronting the new presidential administration. Manipulating the tax system gives the President the opportunity to quickly implement both his economic and social agendas. By reducing taxes, President Bush can stimulate the economy by increasing the wealth of each taxpayer. A closer look at President Bush's proposed tax cut shows how the President plans to revitalize a sagging economy by decreasing taxes on low and middle-income wage earners.
Federal income taxes are the highest they have ever been during peacetime. Americans now work more than four months a year on average to fund the government. The current level of taxes is so high that families pay more in total taxes than they spend on housing, food, and clothing combined. High taxes have unfairly limited the participation of low-income earners and middle-class families from the prosperity of our once booming economy. The Bush tax plan will replace the current five-rate tax structure of 15, 28, 31, 36, and 39.6 percent with four lower rates: 10, 15, 25 and 33 percent. This plan allows each family to keep more of its income, and gives them the opportunity to spend their money as they deem appropriate. Lowering the marginal rates also has beneficial effects on the economy as a whole.
The marginal tax rate is the tax on each additional dollar of income. Lowering the marginal tax rate immediately puts money into people's hands. This stimulates the economy in two ways. The taxpayer will either invest the tax savings in the market or will consume the tax savings by making purchases. When the taxpayer invests the money that stimulates the economy directly. Consuming the tax savings means increased profits for corporations, which translates into a multitude of benefits including a higher rate of employment. Higher rates of employment allow more people to participate in the tax savings. More people working partially offsets the tax cut by increasing the total amount of taxpayers.